Although inflation is slowing, the increase in food prices hasn’t diminished. Last week, Reuters reported that Walmart pushed back against suppliers, warning it would promote its value food brands at the expense of suppliers’ products if the situation didn’t improve at a time when Nestle said it’s going to raise prices.
Albertson’s and Target had been asking suppliers for more reasonable prices, while the Wall Street Journal reported back in January that Whole Foods had done the same.
Why are supermarket chains pushing back now?
Consumer desire for lower prices is one reason. But the pushback may also stem from the fact that many food and consumer goods manufacturers report high earnings despite selling fewer products. Kraft Heinz, a major supermarket supplier, outpaced revenue projections, with a 15.2% hike in prices offsetting its 4.8% drop in volume. Unilever, the company behind brands such as Hellman’s and Knorr, saw its profits increase based on an 11.3% price jump, even as volume dipped. Coca-Cola, too, raised its prices and beat revenue expectations, despite less importance.
Margins at grocery chains are usually between 2.5-3%. They can’t afford to lose customers, and more and more consumers are going to bigger chains for lower prices. Recent data shows that Walmart is now getting a bigger share of shoppers who make six figures while Target is losing share of that segment.
Walmart has the power to force brands to lower prices. Last week, while in a Walmart, there was a display in the aisle for Pepsi. Right next to it was a display for their store brand. The Pepsi display looked like it had barely been touched, while the store brand display was almost empty. If a brand loses Walmart as a customer, they could lose substantial share.
Brands seem to believe the media hype that consumers have money, but they need to notice that credit card debt is reaching new records with higher interest rates. Defaults on auto loans are also at an all-time high. Yes, wages have gone up, but so have costs. Most younger consumers still can’t afford homes, and rents are climbing into new territories.
You have to wonder if someone at these vast brands is saying, “forget market share; we need to maintain our profits for investors.” I’ve talked to buyers and brokers, and they all say the same thing: higher prices are hurting market share.
So the question then becomes, “will the brands that raise prices be able to regain their lost market share?” They may regain some, but it’s hard to win back consumers when you raise prices and report record earnings. Customers remember.